WASHINGTON -(Dow Jones)- The American Petroleum Institute Monday tried to head
off criticism that the oil industry is to blame for record high gasoline prices,
saying high crude costs - and not a conspiracy to keep supplies short - is the
primary driver.

Record prices at the pump have continued to put the oil industry on the
defensive against consumer groups and Capitol Hill Democrats critical of Big
Oil's profits.

The API, which represents the interests of firms such as Exxon Mobil Corp. (
XOM), Chevron Corp. (CVX), ConocoPhillips (COP), Royal Dutch Shell PLC (RDSA),
and BP PLC (BP), said crude costs represent around 70% of the cost of gasoline.

"Add state taxes - which is the next most significant cost - and you can see
why we're in pretty high price environment," said Red Cavaney, API president, in
a media teleconference.

Despite gasoline inventories at their highest levels in 15 years, AAA Daily
Fuel Gauge Report said the national average retail price of regular gasoline
stood at a record $3.287 a gallon Monday. The price is 61.4 cents, or 23%,
higher than a year ago.

Last week, the Consumer Federation of America all but blamed Big Oil for
conspiring to raise prices to their current levels, in a report on gasoline
prices. "For half a decade the major oil companies have exercised their market
power," said Mark Cooper, CFA's research director.

Cooper blames refiners for the current "price pop" by lowering their output
heading into the driving season, despite bearish factors that he says should be
lowering prices - such as declining gasoline consumption, high inventory levels,
and increased biofuel and oil production.

"These market responses are being counteracted by high crude prices driven up
by speculators and reduced oil company refinery runs," said Cooper.

Prices are rising even in the face of falling demand: U.S. January oil demand
figures posted late last week showed strong signs or demand erosion, down 445,
000 barrels a day, or 2.2%, compared with a year ago. That makes demand - at
20.114 million barrels a day - the weakest in any month since April 2005.

Federal lawmakers are sustaining their ongoing attack on Big Oil. Rep. Ed
Markey, D-Mass., chairman of the House Select Committee on Energy Independence
and Global Warming, is on Tuesday expected to lambast oil executives for high
oil prices at a panel hearing.

"This gas price record is a perfect example of why we need these oil companies
to go on the record with the American people to discuss our dangerous dependence
on oil," Markey ahead of his hearing. "These companies are defending billions in
federal subsidies needed for renewable fuels and clean energy while reaping over
a hundred billion dollars in profits in just the last year alone."

House and Senate Democrats have repeatedly tried to kill tax breaks to the
largest oil companies to fund new renewable energy technology, but the measures
have failed on the Senate floor.

Executives, such as BP America President Robert Malone, and Shell's head of
U.S. operations, John Hoffmeister, are scheduled to testify before Markey's
panel Tuesday.

Chief API economist John Felmy said compared with the same period last year,
first-quarter gasoline prices have only increased by 75 cents a gallon compared
with a 94 cents a gallon of crude. For every dollar change in crude, gasoline
prices rise around 2.4 cents a gallon, he said.

According to the government's Energy Information Administration, the national
average price for all gasoline grades has risen more than 15 cents a gallon to $
3.31 a gallon from the beginning of the year. Oil prices in the same period have
risen around $10 a barrel to more than $102.

Gasoline prices have traditionally risen in that period as refiners prepare
for the driving season, including changing the fuel specifications for the
summer. That requires reducing capacity utilization, and many refiners take
advantage of shut downs for maintenance.

Cooper said because of consolidation in the industry at the turn of the
century, there's not the competition in the industry that other sectors enjoy.
Large companies, such as ExxonMobil could smooth the price spike if they didn't
lower refinery runs, he said.

"Their spring cleaning sets off a price spike - running up the price 10-30
cents," Cooper said, adding, "It's not the way a well-functioning market runs."

Felmy said record production, strong inventory levels and near-record imports
- which help to soften prices by providing competition - "means we have a well-
supplied market."

Felmy also rejected the argument that many Capitol Hill lawmakers are using -
that oil companies were making larger profit margins that other sectors. Fourth-
quarter 2007 profit - net income divided by revenue for the Dow Jones Industrial
companies - averaged 7.1 cents on the dollar compared with 7.4 cents on the
dollar for the oil and gas industry, he said.

"The argument that there's no competition simply fails when you see that
refiners' returns are very low right now," Felmy added.

Credit Suisse published a report Monday that argued that refiners' margins
have been slowly increasing after a spell at lower levels.

The investment bank analyst report added, however, that refiners were reducing
crude runs to slow the production rate of gasoline and allow winter grade
inventories to draw down ahead of the summer season. This was reflected in the
DOE data released last week which showed a 1.7% decline in refinery utilization
rates, Credit Suisse said.

Last Monday, for example, Valero (VLO) announced that it had been running its
fluid cat crackers at 73% of capacity, due to stockpiling of gasoline
inventories and weaker demand. "Other refiners are following suit in order to
further tighten the gasoline market," the investment bank said.

The API's Felmy said that previously, crude costs represented less than 50% of
the price of gasoline, but in recent months, the cost of crude has risen higher
than the cost of gasoline on a percentage basis.

API's Cavaney also said that the industry was planning to add another 1
million barrels of new refining capacity by 2011, an average of nearly 200,000
barrels a year.